Students of behavioral finance must have had a field day this past week. In the wake of a month of dismal economic reports, Wall Street got its risk on with a few better than expected reports on manufacturing sentiment, home sales, and employment. Hopium, it appears, is a powerful drug.

“America’s mainstream religious denominations used to teach the faithful that they would be rewarded in the afterlife. But over the past generation, a different strain of Christian faith has proliferated—one that promises to make believers rich in the here and now. Known as the prosperity gospel, and claiming tens of millions of adherents, it fosters risk-taking and intense material optimism. It pumped air into the housing bubble. And one year into the worst downturn since the Depression, it’s still going strong.”

“Bob Farrell was a legend at Merrill Lynch & Co. for several decades. Farrell had a front-row seat to the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987′s crash. He retired as chief stock market analyst at the end of 1992, but continued to occasionally publish. Rumor has it for a humongous donation to Farrell’s favorite charity, you can get on his very exclusive email list. Marketwatch gathered some of Farrell’s more famous observations, and republished them as 10 Market Rules to Remember.” – via The Big Picture

“The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: ‘This is the cause!’ ”
— Leo Tolstoy, War and Peace, Book IV, Part 2, Chapter 1, first paragraph

Economics is converging with everything these days, from the environment to the grocery store to the bedroom. This time, the playing field is none other than the human brain itself, and the results are less surprising than they are empirically fascinating. Contrary to conventional thinking, it turns out that people won’t always act in the own best interests, and that’s as true for investing and gambling as it is for adultery and employment…
MIND GAMES
by JOHN CASSIDY in the New Yorker

What neuroeconomics tells us about money and the brain.
Like many people who have accumulated some savings, I invest in the stock market. Most of my retirement money is invested in mutual funds, but now and again I also buy individual stocks. …

“How much?”
“A lot,” she replies.
“Generic answer” he says, as he heads down the stairs.
The guy has a natural fascination for numbers and quantity. He’s expecting an impressive response. But how much is a lot? And a lot more than what?
Just then, a book drops down on the table in front of her. To put this in context, a lot of books have dropped on the table in front of her these past few months. Well…maybe not dropped, but definitely placed with loving intention.
This time, it’s “A Brief History of Infinity: The Quest to Think the Unthinkable”.
So that’s what he meant. The biggest thing there is.
“Forget counting sheep,” he muses. “Staring at this for even a minute could knock me out …